Beware of Financial Advisers Who Won’t Talk About Fees

What are key warning signs that should make you consider switching financial advisers?

RICK FERRI: Key #1: It’s time to consider switching when you can’t figure out how much you’re paying in fees and expenses, and your adviser avoids the issue. Investment costs are important. You should know exactly what you’re paying and to whom. This includes the adviser fees, commissions, mutual-fund fees and any administrative costs.

Key #2: It’s time to consider switching when you can’t figure out how your portfolio has been performing or how this return compares to appropriate market indexes. Top advisers disclose their performance to clients for better or worse, and they create clear and concise reports that compare returns to appropriate benchmarks. These reports show net-net, meaning they include the adviser’s management fee in addition to all other costs.

Key #3: It’s time to consider switching when you ask your adviser about low-cost index funds and they scoff at the idea. The benefits of using low-cost index funds are well documented, and every learned adviser knows the facts (see A Case for Index Fund Portfolios). I’m not suggesting that all advisers should use index funds, but they should acknowledge that index funds are tough to beat and that there is no sure way to pick winning active fund managers.